Oman Central Bank Statement

Author: | Published: 5 Sep 2017

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Economic activity in Oman remained muted in 2016 in the
wake of low oil prices and the slowdown in world growth.
Preliminary national accounts data for the Sultanate of Oman
pointed to a 5.1% drop in nominal GDP in 2016 as compared to a
more pronounced decrease of 13.8% in 2015. The GDP component
emanating from the petroleum sector registered a decline of
23.7%, while non-petroleum sector GDP rose by 0.6%.

The authorities have been taking policy measures to move
ahead on the path of fiscal sustainability in the medium term.
Reining in public expenditure, augmenting non-oil revenue and
pursuing economic diversification are the key facets of the
State General Budget 2017. The continuation of subsidy reforms
and widening of corporate tax base and rates would go a long
way in reinforcing fiscal prudence. In order to preserve fiscal
buffers, and taking advantage of relatively low cost of funds
in international markets, the government has resorted mainly to
external commercial borrowing, which elicited positive investor
appetite, and partly to borrowing from the domestic market,
which would facilitate financial deepening.

The Central Bank of Oman (CBO) for its part continued its
accommodative monetary policy stance, continuously monitoring
the liquidity situation and ensuring the availability of
adequate credit for productive activities. Inflation in the
Sultanate remained benign in 2016 despite revision in energy
prices, user fees and a firming up of global commodity prices.
The combined balance sheet of the conventional and Islamic
banks together registered impressive growth both in total
credit and deposits. Total outstanding credit stood at OMR22.1
billion ($52 billion) as at the end of December 2016, a rise of
10.1% above the level witnessed a year ago. Total deposits also
picked up, registering a growth of 5.2% to OMR20.4 billion.
Liquidity conditions in the banking system remained
comfortable, with modest upward pressure seen in local currency
interest rates.

The CBO has also taken regulatory and supervisory measures
so that banks remain well-capitalised and healthy in the face
of incipient delinquency due to economic slowdown. Banks in
Oman are adequately capitalised with the Basel capital adequacy
ratio around 16.8% in December 2016 as against 16.1% at the end
of the previous year. Non-performing loans (NPLs) increased to
2.1% in December 2016 from 1.9% recorded in December 2015. With
a view to easing the challenges faced by borrowers due to
weakened economic activity and ensuring the flow of credit to
productive sectors, the specific provisions on restructured
loans have been moderated from 15% to 5% for the year 2016, 10%
for 2017 and 15% for 2018. Omani banks have started
implementing the Liquidity Coverage Ratio (LCR) and associated
disclosure requirements. Guidelines on Net Stable Funding Ratio
(NSFR) have been issued recently and the NSFR will be
implemented in 2018 as a minimum standard of 100%, as per the
Basel Committee's timeline.

The CBO will continuously monitor and adopt appropriate
regulatory and supervisory measures in accordance with evolving
conditions to foster a robust and resilient financial sector to
boost sustainable growth and development in the Sultanate.